Analysis on Benefits on Developing Countries from Globalization Economically

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ESSAY: Analysis on Benefits on Developing Countries from Globalization Economically

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Introduction

Globalization is defined as the growing economic interdependence of countries worldwide developed by variances of crossborder transactions in goods and services and by the higher mobility of production such as a more rapid and widespread international diffusion of technology (IMF, 2006).

The process of globalisation mostly influence developing countries. There are some driving forces behind economic globalisation which are reduction in transport and communication costs, reduced policy barriers to trade and investment, an increase in availability to gain technology, and the transmit speed across national boundaries. The aspects of economic globalisation are liberalisation of international trade, finance and production activities and growing power of transnational corporations (TNCs) and international financial institutions (Khor, 2000). Globalisation has some functions related to increase in international trade, financial flows and foreign direct investment (FDI) and so on. The essay would discuss globalization economically benefit developing countries through four aspects on both forces and threats.

Main Body

1. Positive Impacts of Globalization on Trade Liberalization

Globalisation can accelerate economic growth and reduce poverty by trade liberalization such as promoting foreign direct investment (FDI) and by fostering competition and macroeconomic stability, thus allowing developing countries to exploit their economies of scale (Bhagwati, 2004 and Loungani, 2005).

FDI plays an important role on promoting economic growth. Besides of benefiting to domestic investments, it assists in innovation and technology transfers, enhances the foreign technology absorptive capacity, promotes international trade integration and international mobility of capital can make more efficient allocation of world savings. Additionally, several other positive externalities linked to FDI, may have significant impact on economic growth because FDI combines productivity gains and technology transfers together, which include the introduction of new processes, managerial skills in the domestic market, employee training, international network of production, and access to markets. (De Mello, 1997)Bhagwati (1978), Balasubramanyam, Salisu and Sapsford (1996) suggest that whether FDI would promote economic growth depends on whether the country adopts an Import Substituting Strategy of Industrialization (ISI) or an Export Promotion Strategy (EP) with. The one adopts an export with promotion strategy would promote economic growth through trade.

Therefore, over past two decades, world FDI has gone up more than two and a half times as fast and daily world foreign exchange turnover roughly four times as fast as world GDP. Figures from UNCTAD indicate that FDI inflows to developing countries increased by 28 times between 1980 and 2000. (World Bank, 2001)

Besides, globalization results in grow competition. Although some fear competition, it still essential to have beneficial effects on increasing production or efficiency. With their implications for increases in production on a worldwide basis, competition and the widening of markets can lead to specialization and the division of labor on market system. Besides, economies of scale and scope can potentially benefit to costs and prices reductions. Other benefits of globalization include the gains from trade in which both parties gain in a mutually beneficial exchange. Additionally, because of the rationalization of production on a global scale and the spread of technology and competitive pressures for continual innovation on a worldwide basis, globalization is also conducive to increased productivity. These beneficial effects of competition...
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